2.7.3.2 Asset-lock on winding up

The legal regime regulating CICs does not only restricts the distribution of a CIC’s profits and financial assets whilst the CIC is an ongoing concern, but also places restrictions on its winding-up where asset-lock provisions apply in terms of Section 31 of the 2004 Act.1 Section 31 contains restrictions on the distribution of the CIC’s assets upon a winding up as another mechanism to safeguard its assets and provide the Regulator with the power to ensure that such assets are preserved to satisfy the community benefit.2 The CIC Regulations of 2005 also contain detailed provisions on the application of the asset- lock scheme on the winding-up of a CIC.3 Regulation 23 prescribes that a CIC must be wound up according to the provisions of the UK Insolvency Act of 1986, if there are residual assets remaining after the satisfaction of the company’s liabilities to its creditors.4 If there are residual assets remaining after distributions are made to the creditors and the members, those assets must be distributed to other asset-locked bodies. Regulation 23(5) and (6) distinguishes two conditions under which the assets are distributed to asset-locked bodies.5 According to Regulation 23(5), assets are distributed to the asset- locked bodies that are specified in the CIC’s memorandum and AoA as potential recipients of the assets. According to Regulation 23(6), the assets are distributed to other asset-locked bodies with the consent and approval of the Regulator.6